Small lenders that are not able to raise capital to meet higher requirements set by the central bank should be forced to merge, a senior official says.

"Mergers and acquisitions are good for banks, especially those that can't raise capital," said Le Duc Thuy, Chairman of the National Financial Supervision Committee. "Besides, the activities will reduce the number of credit institutions, which is quite high considering the small market now."

Thuy said it would be hard for partly-private banks to raise capital by issuing shares this year as the stock market is still sluggish and bank stocks have lost their appeal.

The government has required commercial banks to raise their registered capital to at least VND3 trillion (US$162.5 million) by December this year, which is triple the current minimum level of VND1 trillion.

"There are around 20 banks that have not met this requirement yet," Thuy said in an interview published by the Vietnam Economic Times late last week.

The whole banking system has an average 8 percent capital adequacy ratio but there are problems under the surface, he said. The higher the capital adequacy ratio of a lender, the more capable it is in dealing with risk.

"The trend in the world is to raise this ratio. Many regional countries have already reached 12 percent for a long time and their ratios are still growing"¦"